Fintech in Southeast Asia is having a big moment as customers rapidly adopt digital financial services (DFS), making up more than 50% of the region's transactions. The trend prompts traditional companies to digitalise to retain customers, while others are partnering with innovative financial technology businesses to reap the added benefits.
As internet connectivity increased, fintech startups began bridging the digital divide between the urban and underdeveloped areas in the Association of Southeast Asian Nations (ASEAN). Bain & Company reported that 88% of industry experts believed DFS would improve access for unbanked people by 2025. In 2019, more than 70% of Southeast Asians were considered underbanked or unbanked and had limited access to financial services.
Overall, the fintech market offers convenient and speedy digital payments, investment options, capital fundraising, digital asset acquisition, and neo-banking—accessing bank services online only. Increased smartphone use, the prevalence of mobile payment solutions, and technological advancements in infrastructure, products, and services are powering fintech's uptick.
Steps fintech startups are taking to ensure their future
A recent dip in fintech funding in 2024 is primarily due to geopolitical tensions, global economic headwinds, cyber attacks, and stifling regulations. Critical industry trends include artificial intelligence (AI), multifactor protection, super apps, and 5G technology. Thus, it is vital for businesses to future-proof their operations to stay competitive in the long term.
Here are several ways they are protecting themselves:
Navigating the region's evolving regulatory environment
ASEAN governments have played a significant role in adapting the regulatory climate to boost the fintech ecosystem. Companies are creating compliant business models that can adapt to new laws and regulations. For example, Singapore has regulatory sandboxes where fintech players can try out their products and services in a live but controlled environment and for a specific duration.
Implementation of cross-border policies to establish common regulatory frameworks, standardise licensing requirements, track real-time transactions, and prevent money laundering are essential. Fintech companies should invest in compliance and risk management systems, attend mentorship summits, and seek government guidance.
Leveraging digital-first approaches
Some fintech trends investors consider include mobile wallets for transacting on apps and eCommerce sites, AI for automation, data analysis and storage, and real-time cybersecurity responses. Moreover, blockchain and cryptocurrency enable commerce, save accurate data, trace transactions, and limit fraud.
According to professional services firm KPMG in Singapore, ESG (environmental, social, and governance) policies in fintech will lead to sustainability solutions like carbon services and green market infrastructure technologies. The former is about stewardship over the environment and transitioning to a low-carbon economy through tracking apps and platforms and carbon emissions trading.
Green market infrastructure focuses on the foundational tech supporting the collection, analysis, and reporting of ESG data, thereby promoting more sustainable business practices.
Ensuring cybersecurity and data privacy in fintech
Companies must apply the best cybersecurity practices to combat the evolving cyber threat landscape and build trust with users and regulators. Startups should recruit reliable managed security service providers to protect data and brand reputations. Employees must be vigilant to phishing attacks, watch out for insider threats, and be wary of malicious software.
Fintech data contains extensive customer information, exposing them to risks of identity theft and financial losses. ASEAN businesses should conduct security assessments, implement measures like multifactor authentication, and encrypt sensitive data.
Disposable browsers may be essential for meeting future privacy goals. They erase browsing histories after a session, prevent cross-site tracking, and isolate potential threats and malware.
Collaboration with industry stakeholders
Collaboration is key in the fintech industry. Fintech companies must work hand in hand with traditional financial institutions, tech companies, government agencies, and other stakeholders to address regulatory challenges, foster innovation, mentor leaders, scale their businesses, and build a robust ecosystem.
These collaborations can lead to significant advancements in the industry by focusing on localised solutions that consider diversity, cultures, regions, and the issues to be addressed.
Focus on financial inclusion
Southeast Asia has long-term potential because it has growing wealth, favourable demographics of young and tech-savvy people, and increased urbanisation, which leads to higher digital use.
Thus, fintech companies can flourish by innovating solutions, such as Buy Now Pay Later (BNPL) payment models. This service enables citizens to obtain products when needed and gives companies a sale that may not have happened otherwise.
How fintech startups can remain competitive
As the digital economy evolves and innovators introduce new technologies to solve various issues, fintech startups must remain agile and sustain their upward trajectory. They can seek strategic investment partners, pursue emerging technologies like Web 3.0, and upskill their staff to stay up-to-date with industry changes.
Ultimately, fintech in Southeast Asia has all the elements necessary for continued success, democratising access to financial solutions for the region's unbanked citizens. The sector has regulatory and public support, keen investors, and creative startup leaders addressing monetary challenges in digital payments, wealth management, insurance, and more.
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